Things won’t turn around quickly for Africa’s largest oil producer

A Chinese worker walks past a construction site in Lubango, Angola March 5, 2014.

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Herculano Coroado/Reuters

Things might not turn around quickly for Angola.

“The Angolan economy will continue to suffer from slow growth over the next 12-18 months as high inflation and unattractive borrowing costs weigh on production incentives,” argued a BMI Research team in a note to clients.

“The highly oil-dependent economy is slowly moving away from crisis point, reached in Q116 when Brent crude plummeted to its lowest price since 2003 at less than $30 per barrel,” they continued. “Even so, we believe any subsequent recovery will be slow, as high inflation and weak levels of investment see growth fail to reach its historic trend.”

The team sees real GDP growth of 2.1% this year, and a slight uptick to 2.4% in 2017.

Angola relied on oil for about 70% of government revenues and 97% of export revenues in 2014. And so, lower prices therefore were not exactly a welcome surprise.

Inflation hit 38.2% in August – the highest level since July 2003. And the currency has lost about 39% of its value against the dollar since the beginning of 2015.

Notably, Angola also has potential political risks: the 2017 presidential election, and the current president José Eduardo Dos Santos’ stated intention to step down in 2018. (He’s been in office since 1979.)

“Our core view is for a managed succession in which power is kept in the hands of the current elites from the ruling party, but we add that we will likely see an increase in grassroots opposition and violent protests around the time of any transition of power,” noted the BMI team.

“Should opposition escalate to levels that threaten to destabilise the President Dos Santos’ succession, then we would expect a slower economic recovery as investors remain cautious over the uncertain political climate.”

Prices for Brent crude oil, the international benchmark, are up by 0.5% at $46.10 per barrel as of 10:27 a.m. ET.